The couple then ran up the hill and called the police. They said an officer turned up within five minutes and proceeded to try to locate the group.
The man said what he saw made him feel "revolting". He said there had been children around "just minutes" beforehand.
It "shook us up", the man says, who was supposed to be going to a party with his fiancee tonight but they opted to stay in after the experience.
He said there were around 10 people in the group, made of up of men and women, who were involved in the sexual activity.
There were also two men that appeared to be standing guard and one of the men locked eyes with him when he looked at him.
"An officer attended, made himself known and spoke to those involved, and the matter has been dealt with," a police spokesman said
Historically, Ladies Bay was a nude swimming area for women, with neighbouring Gentleman's Bay popular with naturist men.
But most of the naked visitors to Ladies Bay now were male.